Flashcards in Session 4 Deck (11):
What is the definition of Mergers and Akquisitions (M&A)?
buying, selling, dividing and combining of different firms without creating a subsidiary, other child entity or using a joint venture
Which types of M&A exist?
- related vs unrelated
- horizontal vs vertical
- friendly vs hostile
Which motives for M&A exist?
- synergetic motives
- hubris motives
- managerial motives
Which takeovers exist?
- friendly vs. hostile
- tender offer vs. merger agreements
- "any and all" vs. conditional offers
- one-tier and two-tier
How does the takeover process expire?
1. potential acquiror makes an offer to target shareholders:
- specify conditions: price, expiry date, cash or shares
2. possibility of competing bids
3. management may decide to use defenses
4. bidding closes
5. shareholders decide to hold their shares or tender
6. if more than 50% (or whatever is necessary) tender, new majority shareholder can:
- elect new directors
- propose merger
- dismiss incumbent management
Which takeover defenses exist?
- managers want to keep their jobs
- often fired after takeovers
- protection of managerial rents
- managers want to have a stronger hand in negotations:
- shareholders are atomistic, managers negotiate on their behalf
What is a poison pill?
- a warrant (option to buy stock from the company)
- one shareholder owns more than a certain fraction of shares
- all other shareholders are allowed to buy the stock at a reduced price
- share of larger shareholder gets diluted and suffers capital loss
- poison pill distributes wealth from the acquirer to other shareholders
What is an event study analysis?
an event study attempts to measure the valuation effects of a corporate event, such as a merger or earnings announcement, by examining the response of the stock price around the announcement of the event
Which types of events exist?
1. within the firm's control, such as the event of the announcement of a stock split
2. outside the firm's control, such as a macroeconomic announcement that will affect the firm's future operation in some way
Which various events have been examined?
- mergers and acquisitions
- earnings announcement
- issues of new debt and equity
- announcements of macroeconomic variables
- dividend announcements